Prudential Financial

Ticker: PRU, Buy below $100.

Prudential Financial a Fortune 500 company providing insurance, financial management and other financial products.

Why I Would Buy

1.       Cheap – Prudential’s stock is currently selling for < 6x earnings.

2.      Strong Buy rating – Sports a 5 star buy rating from S&P   

3.       Low Payout Ratio – The dividend is a respectable 3%, with a payout ratio below 30%.

4.      Good Credit Ratings – Long term debt of the company is rated investment grade by all three rating agencies.

What Could Go Wrong

1.       Uneven Performance – During the past decade, Prudential has had 2 years of negative earnings.

Disclosure: I am long PRU, please read additional disclosures here before taking any action based on this post.

LyondellBasell Industries

LyondellBasell is one of the world’s largest chemical and plastics companies.

Why I Would Buy

1.       Cheap – LyondellBassell’s stock is currently selling for < 9x forward earnings.

2.      Strong Returns on Equity – As visitors to this site know RoE is my favorite metric for evaluating stocks. LYB has delivered an eye-popping 50% returns on equity during the  past 5 years!  

3.       Low Payout Ratio – The dividend is a respectable 3%, with a payout ratio below 30%.

4.      Good Credit Ratings – Long term debt of the company is rated investment grade by all three rating agencies.

What Could Go Wrong

1.       High COGS (Cost of Goods Sold) – LyondellBassell  has incredibly high COGS, approaching80% of revenue. Even small increases in cost of raw materials will significantly eat into profits.  

 Disclosure: I am long LYB, please read additional disclosures here before taking any action based on this post.

WH-Group

WH Group

Ticker: WHGLY, Buy below $15.

WH Group is the largest pork company in the world — with holdings in China, U.S. and Europe.

Why I Would Buy

1.       Cheap – WH’s stock is currently selling for < 10x forward earnings.

2.      Market Dominance – WH group has near global monopoly in pork production, processing and packaging; the rest of the market is highly fragmented and does not possess a comparable scale of operation.  

3.      Opportunistic Buy – The stock is buffeted by multiple factors: the trade war, and pork disease in China. Both these have already been priced in, a snap back is likely in the medium-to-long term.

4.       Low Payout Ratio – The dividend is a respectable 4%, with a payout ratio below 30%.

5.      Good Credit Ratings – Long term debt of the company is rated investment grade by all three rating agencies.

What Could Go Wrong

1.      Chinese Company – Potential for poor accounting and governance standards, government intervention, and questionable shareholder rights etc.

2.      Trade War – The company imports significant volume of Pork from the US and is directly in the crosshairs of the tariffs.

Disclosure: I am long WHGLY, please read additional disclosures here before taking any action based on this post.

Lincoln National

Ticker: LNC, Buy below $66.

Lincoln National is a Fortune 250 American holding company, which operates multiple insurance and investment management businesses.

Why I Would Buy

  1. Cheap – LNC is currently selling for > 8x trailing earnings and forward earnings.
  2. Below Book – The stock can be purchased below it’s book value (P/B: 0.93).
  3. Return on Equity – RoE has been at a high single digit level for the past decade.
  4. Low Payout Ratio – The dividend is a respectable 2%, but a payout ratio below 20% affords plenty of opportunity for future dividend growth.
  5. Strong Buyback – Management has announced an aggressive share buyback program, which is likely to be accretive to shareholders given the low valuations of the stock.

What Could Go Wrong

  1. Credit Rating – Long term debt of LNC is rated BBB+ by S&P, I would’ve liked higher ratings.
  2. RoE – Although decent, consistent double digit returns would’ve made the stock more attractive
  3. Relative Valuation – Not particularly cheap when compared to other large life insurers.

 

Disclosure: I am long LNC, please read additional disclosures here before taking any action based on this post.

 

Scotia Bank

Ticker: BNS, Buy below $60.

Bank of Nova Scotia is a major Canadian multinational bank.

Why I Would Buy

  1. Cheap – BNS is currently selling for 11x trailing earnings and 10x forward earnings.
  2. Dividend – Pays a 4+% dividend, while maintaining a payout ratio below 50%.
  3. Return on Equity – RoE has been consistently at high teens for the past decade.
  4. High Credit Ratings – Strong investment grade credit ratings on long term debt (A+ by S&P). I like strong long term debt ratings, as it is an indicator of the longevity and sustainability of earnings.
  5. Geographically Diversified – in addition to Canada, the bank has significant revenue streams emanating from Caribbean and Latin American countries.

What Could Go Wrong

  1. Recent Stock Issuance – BNS issued a large amount of stock recently to fund an acquisition, it may or not be accretive.
  2. Trade War – Looming trade war could hurt emerging markets that BNS is exposed to.
  3. Relative Valuation – Not particularly cheap when compared to other large banks e.g. JPM.